DPPA can facilitate data center investments in Vietnam, negate fuel price volatility: think tank

Vietnam can gain robust economic benefits from the goverrnment's decree on direct power purchase agreements (DPPA) for renewable energy, which was issued in July, said the Institute for Energy Economics and Financial Analysis, a think tank based in the United States.

An extraordinary feature of the decree grants permission for entirely privately developed, owned, and operated transmission lines. This landmark legislation could ignite a new wave of rapid renewable energy development in Vietnam, the think tank said.

This policy will help Vietnam retain multinational manufacturers and service companies with corporate renewable energy mandates.

For example, major data center operators such as Google’s parent Alphabet, Microsoft, and Amazon Web Services are among the largest corporate renewable power purchase agreement (PPA) signatories.

Vietnam’s new Telecommunications Law, adopted July 1, 2024, now permits 100% foreign ownership in data center infrastructure. Combined with the DPPA decree, many companies may seek to invest in new facilities supplied with 100% green energy, according to the institute.

Besides, per Vietnam’s commitment to net zero emissions, a substantial amount of additional clean energy under DPPA will help reduce the economy’s carbon intensity.

The think tank also emphasized that Vietnam wants to keep its industrial sector supplied with energy sufficient for persistent GDP growth. While state utility Vietnam Electricity (EVN) faces challenges, the DPPA mechanism can mobilize the private sector to help deal with the issues.

The decree can also provide impetus to Vietnam’s renewables development and help stabilize energy costs. Over the past years, the extreme volatility of coal and LNG import markets troubled price-sensitive government planners. With their fixed up-front expenses and zero fuel costs, renewables protect against fuel price volatility, the think tank added.

The think tank noted an example of China. When the northern neighbor of Vietnam ended financial support for cross-border coal plants, plans to add up to 30 gigawatts (GW) of coal-fired power generation capacity were hampered.

China looked to LNG to fill the gap. But the Ukraine-Russia conflict hurt the global energy market as coal prices have once gone from under $50 per ton to over $400. Spot LNG, hovering at lows of $2 per million British Thermal Units (mmBtu) in January 2022, once quickly rose to all-time highs over $50 per mmBtu.

Renewables as quick, affordable fix to Vietnam’s energy sector

The Institute for Energy Economics and Financial Analysis also pointed out that renewables are the fastest, cheapest fix to Vietnam’s supply and cost challenges. From 2017-2021, Vietnam’s private sector proved that local developers could add large amounts of renewable energy capacity in short periods.

That development came at a cost due to high feed-in tariffs to EVN as an energy buyer. Since then, the costs of solar photovoltaic and onshore wind power have dropped considerably, paving the way for renewable energy development.

Additionally, the overgrowth of renewable energy exposed transmission constraints as the electricity sector’s biggest challenge. Under the DPPA decree, the private-to-private transmission option permits developers to construct their own lines, bypassing a constrained grid, the think tank pointed out.

Provisions of the law require private developers to design, build, and operate those facilities to EVN’s standards, implying those new lines could be integrated with the national grid later, the institute suggested.